When it comes to obtaining a commercial real estate loan, the process has historically been inefficient and opaque, lacking the transparency and efficiency necessary to ensure borrowers are securing optimal terms. Instead of spending critical time completing transactions and implementing business plans, borrowers are often stuck going back and forth between a limited number of lenders and brokers, attempting to obtain the best possible outcome.
When obtaining a commercial mortgage, there are four common roadblocks that borrowers face:
- Preferential bias caused by broker, borrower and lender relationships
- Misalignment between a lender and borrower
- Errors caused by reliance on paper documentation or manual data entry
- The inability to collect, organize and track important documents
Below we dive into the impacts these challenges can have on borrowers, and how technology can remove the friction from the cumbersome process that is commercial mortgage lending.
Eliminating Preferential Bias
When applying for a commercial mortgage, you frequently work with a broker who has personal relationships with various lenders. Due to the lack of visibility, a borrower doesn’t always know if they’re getting the best deal due to the nature of broker and lender relationships. While you’re likely approaching multiple players, the best result within that sample set may still be suboptimal within the context of the broader market. If a broker recommends a certain type of execution from a specific lender, how do you know it’s because it's best suited for your project and not because of the risks for the lenders or the compensation for the broker?
Technology that creates a debt placement marketplace removes the opaqueness tied to traditional commercial mortgage lending. It then allows borrowers to review soft quotes from all lenders who chose to provide them, eliminating preferential bias. By having lenders on a platform with a proven track record as some of the largest and most successful originators, consistency can be ensured between the terms provided at quote through close.
The timeline for receiving a hard quote in the traditional commercial mortgage lending process has a significant degree of variation under the traditional process ranging anywhere from a few days to a few months. A lot can happen in the market from the first sizing request to having a hard quote submitted, leaving the borrower unsure of whether the deal they’re receiving accurately reflects the current state of the market. Automated sizing with the use of technology removes this grey area from the process and enables real-time pricing, providing borrowers with a true sense of the market.
The traditional commercial mortgage lending process has always been tedious, time-intensive, and driven by manual data entry and spreadsheets. These inefficient processes often leave an unnerving amount of room for error, which can easily prevent a deal from closing. Technology and automation can quickly streamline these grueling tasks to speed up the overall process and reduce the risk of costly mistakes that can prevent the borrower from achieving their desired outcome.
Mitigating Inefficiencies in Due Diligence and Communication
Obtaining a commercial mortgage is a document-heavy process. It is critical for the borrower to complete all necessary forms with key property information and financials to ensure a smooth process. It can also easily become a challenge for brokers to organize these documents and keep track of what they’ve received and need to follow up on with the borrower. The more back and forth that transpires the more likely for a slow down in the loan approval process.
Similar to manual data entry, technology and automation can be a vital resource for efficiently collecting and tracking documents. With a user-friendly interface, all parties on either side of the table can have a more streamlined process with one single source of truth. With additional automation processes like chat features and cloud elements that can be brought into the mix, more tasks can be streamlined even further, leading to optimal efficiency.
The Bottom Line
Technology can bring the commercial mortgage lending process into the 21st century. By removing ambiguity and streamlining outdated, inefficient processes, a more transparent marketplace can prosper, and both lenders and borrowers can be better positioned for the best possible outcomes.
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